Ever wondered why businesses reports in INR but shows USD too? Discover how economic shifts force Indian companies to pick functional vs reportable currencies under Ind AS 21. Export giants vs domestic players – the rules that change everything.
How Indian corporates really decide their reportable currency
Indian corporates do not just “pick” a currency because it looks good to foreign investors – they have to follow clear rules under Ind AS 21 and Indian law.
This article breaks down how companies move from the economic environment they operate in, to the currency they measure in (functional currency), and finally to the currency they actually report in (presentation/reportable currency).
Functional vs reportable (presentation) currency
Before understanding how corporates decide their reportable currency, it is essential to separate two key concepts from Ind AS 21.
1. Functional Currency: The currency of the primary economic environment in which the entity operates – the one that mainly influences cash inflows and outflows.
2. Presentation / Reportable Currency: The currency in which the financial statements are presented to users (what investors, lenders and regulators see in the final accounts).
Ind AS 21 states that the functional currency is determined based on economic reality, whereas the presentation currency can, in principle, be any currency, subject to local regulatory requirements.
Legal reality for Indian corporates: why INR dominates
In theory, Ind AS 21 allows an entity to present its financial statements in any currency (or even multiple currencies).
In practice, Indian corporates face a strong legal and regulatory push towards Indian Rupees (INR) as their primary reportable currency, because:
- Companies Act and MCA filings: Financial statements filed with the Registrar of Companies and other authorities are expected in INR.
- Tax submissions: Income tax and other tax returns, computations and supporting financials are prepared in INR.
- Stock exchanges and SEBI: Listed entities submit quarterly and annual results to Indian stock exchanges in INR for comparability and investor understanding.
Many expert summaries therefore note that, for Indian companies, statutory presentation currency “must” or is “preferred” to be INR, even though Ind AS 21 itself does not restrict the choice at the standard level.
Step 1 – Determining the functional currency
Even before thinking of reportable currency, Indian corporates must first work out their functional currency under Ind AS 21.
Primary indicators
Ind AS 21 requires management to look first at indicators that show where the business really “lives” economically.
- Currency that mainly influences sales prices of goods and services (for example, USD if exports are priced in dollars).
- Currency of the country whose competitive forces and regulations mainly determine sales prices.
- Currency that mainly influences labour, material and other cost inputs (for example, INR if the cost base and salaries are in rupees).
If these indicators clearly point to one currency, that becomes the functional currency.
Secondary indicators
If the picture is mixed, Ind AS 21 asks entities to look at secondary indicators.
- Currency in which funds from financing activities (debt and equity) are generated.
- Currency in which cash is retained from operating activities.
These do not override the primary indicators but help tilt the decision when the answer is not obvious.
Special situations
Ind AS 21 also provides guidance for:
- Foreign operations (subsidiaries, branches): Whether their activities are an extension of the parent or have significant autonomy affects their functional currency.
- Highly inflationary or exchange-restricted environments: Recent amendments in India address “lack of exchangeability” when currencies cannot be freely exchanged.
Once determined, the functional currency is changed only when there is a fundamental change in the underlying economic environment, not simply because management wishes to change it.
Step 2 – Translating functional currency into reportable currency
After measurement in functional currency, Ind AS 21 explains how to translate financial statements into the chosen presentation/reportable currency.
General translation rules
For an entity whose functional currency differs from its presentation currency, Ind AS 21 requires:
- Assets and liabilities: Translate at the closing rate on the reporting date.
- Income and expenses: Translate at exchange rates at the dates of the transactions, often approximated using average rates for the period.
- Equity items: Translate at historical rates for share capital and reserves.
The resulting exchange differences are not taken to profit and loss; they are recognized in other comprehensive income and accumulated in a separate component of equity (often called foreign currency translation reserve).
When the functional and reportable currencies are both INR
For many purely domestic Indian corporates, the functional currency is INR, and presentation/reportable currency is also INR.
In such cases:
1. There is no translation required for the primary set of financial statements.
2. Foreign currency transactions (imports, exports, foreign borrowings) are still accounted for under Ind AS 21 using spot, closing and historical rates for different items, but overall financial statements are already in INR.
This is the default situation for companies whose main market, costs and funding are all in India.
Step 3 – Why some Indian corporates show more than one currency
Even though the “statutory” reportable currency for Indian filings is INR, large corporates often publish additional information in other currencies.
Multiple presentation currencies for global investors
Ind AS 21 explicitly allows financial statements to be presented in any currency, and even in multiple currencies, if the translation rules are followed.
Indian corporates may therefore:
- File statutory financials in INR with Indian regulators, and
- Publish or file translated financial information in USD, EUR or another currency for:
- Overseas stock exchange listings or depository receipts.
- Global investor presentations and bond prospectuses.
In such cases, INR remains the primary reportable currency for Indian law, while the additional currency is an alternative presentation of the same underlying numbers.
Group structures: foreign parents and Indian subsidiaries
For Indian subsidiaries of foreign groups:
- The Indian company usually has INR as presentation currency for its standalone statutory financials in India.
- For consolidation, the parent translates the Indian subsidiary’s financials from its functional currency (often INR) to the group’s presentation currency (for example, USD or EUR) under Ind AS 21 / IFRS.
This is why the same business can appear in different currencies in different reports, without breaching accounting rules.
Economic environment factors that really drive the choice
When people talk about “economic environment”, they are essentially referring to the factors used to determine functional currency, and the practical forces that push the choice of reportable currency.
Factors influencing functional currency in Indian corporates
Key environment-linked factors include:
- Where goods and services are sold: Export-heavy companies whose prices are mostly in USD or EUR may have a foreign functional currency, even if incorporated in India.
- Where major costs arise: If most salaries, raw materials and overheads are in INR, this points strongly towards INR as functional currency.
- Financing pattern: Companies with large foreign currency borrowings and equity from overseas investors may have stronger indicators towards a foreign functional currency.
- Cash retention: The currency in which cash is retained, surplus is invested and dividends are planned reinforces the functional currency assessment.
Indian guidance notes that management judgment is critical, but it must be anchored in these indicators rather than in tax or cosmetic considerations.
Factors shaping the reportable (presentation) currency
Once the functional currency is set, the reportable currency choice is influenced by:
- Statutory and regulatory requirements (Companies Act, tax laws, SEBI and stock exchanges) – these make INR the natural statutory reporting currency.
- Investor base: Companies with a large global shareholder base may voluntarily provide financials in USD or other major currencies.
- Peer comparability: To stay comparable with local peers, Indian corporates generally keep INR as their main presentation currency in the domestic market.
So, the economic environment drives functional currency, while law, markets and communication needs shape which currency becomes the reportable face of the company.
Can Indian companies change their reportable currency?
Changing reporting currency is not something companies are expected to do often, because it affects trend analysis and comparability.
Changing functional currency vs changing presentation currency
Ind AS 21 distinguishes between:
- Change in functional currency: Allowed only when there is a change in the underlying economic environment (for example, a domestic company becomes export-dominated with most prices and costs in USD).
- Change in presentation currency: Permitted, but the entity must apply translation rules to all prior periods and explain the reasons and method clearly in the notes.
In India, any change that affects statutory reporting in INR would also have to respect Companies Act and regulatory requirements, so INR usually remains at least one of the reportable currencies.
Disclosure expectations
When a company changes functional or presentation currency, good practice and Ind AS 21 expect:
- Clear disclosure of the fact and date of change.
- Explanation of the reasons, including the economic indicators considered.
- Explanation of how comparatives have been translated or restated.
This transparency helps users understand that a change in reported numbers may come from currency presentation, not only from business performance.
Indian corporates in a volatile FX environment
Recent years have seen increased foreign currency borrowing and cross-border deals by Indian firms, which makes the choice and stability of currency decisions more important.
1. Studies show that Indian non-financial corporates often use foreign-currency borrowing, which exposes them to exchange risk in both functional and reporting currency terms.
2. Amendments to Ind AS 21 in India on “lack of exchangeability” highlight that regulators want clear rules when currencies cannot be freely converted, affecting how translation is done.
For users of financial statements, understanding functional and reportable currency choices is now part of reading Indian corporate accounts intelligently, especially for export-heavy or globally financed businesses.
Key takeaways for readers and investors
To quickly decode how an Indian corporate has determined its reportable currency in light of its economic environment, look for these points in the annual report.
- Note on functional currency: Usually in the significant accounting policies section; it explains the functional currency for the entity and major subsidiaries.
- Presentation/reportable currency: Stated clearly at the start of the financial statements (often: “These financial statements are presented in Indian Rupees…”).
- FX translation reserves: Check equity for foreign currency translation reserve, which signals that some parts of the group are being translated from another functional currency.
By linking these disclosures back to where the business earns, spends and funds itself, readers can understand how Indian corporates move from their economic environment to the currency in which they finally report their story.
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